Some business owners would rather have a root canal than go through the process of opening a merchant account twice. Initially, it seems like an unnecessary step to take when the ownership changes hands. Although it may not be first on your list of things to do, applying for a new merchant account is necessary to prevent many inconveniences down the road. One of those headaches is fraud, which could occur when an owner leaves the company. Another is the inability to get access to your bank account if you are a new owner of the company. Here’s a few situations you may find yourself in if you keep the same merchant account:
The Personal Guarantee on a Merchant Account
Chances are that your payment processor required the owner of the company signed a personal guarantee before providing merchant services. Signing it means that you’re responsible for the company’s liabilities. If you signed a personal guarantee and later handed off ownership to another party, you’ll definitely want to remove your name from the account. Once you’re not in control of the financial decisions, you shouldn’t be liable for the company’s actions.
An Old Owner Choosing Where Funds Are Deposited
The current owner of a merchant account has the right to designate where the funds in that account transfer to. It is as easy as calling your business bank, passing authentication and giving a representative an account and routing number. So, what happens if the bank still lists a previous owner as the current owner of the merchant account? They could seamlessly call in and commit fraud by taking the entirety of your credit card transactions.
Previous Business Owner Used the Merchant Account as a Personal Bank Account
According to Business Wire, 26% of small business owners do not have separate bank accounts for business and personal use. This is a dangerous merging of business and pleasure. You could be paying personal bills with business money. At the very least, this could turn into a year-end taxing nightmare. If you’re the owner of a recently transferred company, you should get a new merchant account to avoid this. The previous owner may want to still use the account for personal reasons and their poor financial decisions shouldn’t reflect on your clean slate.
Customer Service Doesn’t Have You Listed as Account Owner
Let’s say you want to make a change to your recently acquired merchant account. You want the credit card transactions over $200 to deposit into a separate account, or perhaps you want to change the permissions of a new employee to have access to the account. If you’re not listed as an owner on the account, customer service will not help you. The original paperwork doesn’t have your name on it, and you’re suddenly helpless to make decisions about your own businesses financials.
It’s not just new ownership situations that should prompt you to set up a new merchant account. In the case of a partnership, or an addition of a co-owner, new paperwork should be drawn up as well. It is common that your partnership agreement doesn’t mention how and when a partner can be removed from a business bank account. That is why it is safer to just open a new one.
New Owner? Get a New Merchant Account
Even if you never went through the process of opening a business bank account before, there is no reason to avoid it. You could have it done within a week if your merchant services rep is attentive and thorough. It may just be easier and less expensive to apply than the first time around.